Big City Residents Have A Much Heavier Taxpayer Burden Than They Realize

American taxpayers have a much heavier debt burden than they are aware of. How and when municipalities publish their financial accounts varies greatly throughout the United States. A significant number of U.S. municipalities do not publish all the liabilities that their residents have such as housing and transit authorities and school districts. Unfortunately, this means that taxpayers are not aware of the entire extent of their cities’ liabilities, which all too often are unfunded. At some point, residents will be sorely disappointed when their taxes have to be raised significantly or when their services are cut; worse yet, numerous municipalities are in such bad shape, that there is a strong likelihood that residents could well be facing tax hikes and service cuts simultaneously.

Today, Truth in Accounting, a Chicago-based nonpartisan municipal watchdog, released a new report, “Taxpayers on the Hook,” that focuses on the United States’ ten most populous cities. The analysis quantifies those cities’ underlying government entities and provides taxpayers with a more holistic, and hence, accurate view of their cities' financial state. Unfortunately for millions of taxpayers, TIA found that “When the unfunded debt of these underlying government units is combined with the county, municipal, and state debt, city taxpayers are on the hook for much more than they think.”

In Taxpayers on the Hook, TIA details that taxpayers in the U.S.’ ten most populous cities, taxpayer faces an average burden of nearly $50,000, including county, state, and “off-balance-sheet” city government entities. According to TIA CEO Sheila Weinberg, "By not including underlying government units in their comprehensive annual financial reports, city governments are not giving taxpayers a complete picture of the city’s financial condition." Weingberg also explained that "City governments are required to include component units in their comprehensive annual financial reports. There is no standard to include underlying government units, such as school districts.”

Chicago and New York City are in the worst financial condition whereas Phoenix and San Antonio are not in as bad shape. With the exception of San Antonio, Texas, the top ten populous cities all received a letter grade of D or F. San Antonio received a C and its city liabilities’ burden per taxpayer of $3,200 is much lower than any of the top ten cities in this report. Yet, San Antonio residents are also on the hook for county and state liabilities.

Big city taxpayers have a heavy tax burden due to city, county, and state liabilities.

Data Source: TIA

Of the most populous cities in the U.S., Chicago is by far in the worst shape. In a previous analysis, TIA had found that Chicago ranked No. 74 out of the 75 most populous U.S. cities with a Taxpayer Burden of -$36,000, which is each taxpayer’s share of municipal debt. At the time of the analysis, New York City ranked 75, with residents bearing a burden of $64,100 per resident. Upon further analysis, however, “when you combine the debt of these underlying government entities, the county, the city, and the state, Chicago’s Taxpayer Burden skyrockets to -$119,110, while New York City’s Taxpayer Burden rises to -$85,600.” The Chicago Housing Authority provides taxpayers a small surplus of $820 per resident. Unfortunately, that small surplus is dwarfed by the liabilities. The largest part of Chicago’s taxpayer burden stems from the city’s and state’s unfunded retirement obligations which have accumulated over of a number of years. Of the $39 billion in retirement benefits promised, the city of Chicago has not funded $28 billion in pension and $842.9 million in retiree health care benefits.

According to Weinberg, “Illinois has the largest number of government units in the country. The state created various government units so that those entities can have taxing and borrowing power.” Additionally, the state of Illinois's reported net position is inflated by $24.4 billion, largely because the state defers recognizing losses incurred when the net pension liability increases. TIA has been calling the Illinois Comptroller's Office about when the state will release its very tardy 2018 comprehensive annual financial report (CAFR), but the comptroller has not specified a date. In the 2017 CAFR, the long-term net deficit ballooned more than $10 billion in just one year.

Chicago taxpayers have the largest debt burden in the country.

TIA

Unlike the other municipalities in TIA’s report, New York City does publish its underlying government units in the city’s annual financial report. When state of New York debt is added to city debt, each New York City taxpayer has a burden of -$85,600. According to TIA “New York City’s financial problems stem mostly from unfunded retirement obligations that have accumulated over many years. Of the $312.2 billion in retirement benefits promised, the city has not funded $60.4 billion in pension and $96 billion in other post-employment benefits (OPEB).” Additionally, New York City’s reported net position is understated by $10.3 billion, mostly because the city delays recognizing gains resulting from changes in OPEB plan assumptions.

New York City has significant unfunded liabilities.

TIA

Unlike Chicago and New York City which received a grade of F for their financial state, the city of Phoenix receives the barely passing grade of D. Like many of America’s cities, its financial problems stem mostly from unfunded retirement obligations that have grown over many years. TIA found that “Of the $9.1 billion in retirement benefits promised, the city has not funded $4.5 billion in pension and $185.5 million in retiree health care benefits.”

Phoenix taxpayers have the least debt burden of the ten most populous cities.